Procurement Methodology Guidelines For Construction: New South Wales Government

New South Wales
Government
Procurement
Methodology Guidelines
for Construction
Version 1 - February 2005

Procurement Methodology Guidelines for Construction
Establishes common terminology used to describe various options and provides guidance for the selection of the most appropriate
procurement methodology, allowing for a range of management, delivery and contract system options and project types, as part of
the procurement strategy for construction works (including ancillary maintenance and operation).
This document was developed by the Construction Agency Coordination Committee (CACC).
The CACC membership includes representation of:
• Department of Housing
• Department of Commerce
• Hunter Water Corporation
• Rail Infrastructure Corporation
• Roads and Traffic Authority
• Rail Corporation New South Wales
• Sydney Catchment Authority
• Sydney Olympic Park Authority
• Sydney Water
• TransGrid
• Transport Infrastructure Development Corporation
June 2005
DC Report no. 05011
NSW Department Commerce

Cataloguing-in-Publication data
New South Wales. Dept. of Commerce
Quality management systems guidelines for construction.
Electronic version is available from http://www.commerce.nsw.gov.au

ISBN 0 7347 4334 8 (electronic version)
1. Construction industry –New South Wales – Quality control.

2. Title. II. Series (Capital Project Procurement Manual).
3. Public contracts –Government policy – New South Wales
354.944
This work is copyright. Apart from any use as permitted under the Copyright Act 1968, no part may be reproduced by any process
without written permission from the NSW Department of Commerce. Requests and inquiries concerning reproduction and rights
should be addressed to:
Construction Agency Coordination Committee

Level 23, McKell Building
Rawson Place
SYDNEY NSW 2000
Website: http://www.construction.nsw.gov.au
Email: construction@commerce.nsw.gov.au

CONTENTS
1. INTRODUCTION ....................................................................................................... 4
1.1 General............................................................................................................ 4
1.2 Definitions........................................................................................................ 5
2. COMPONENTS OF A PROCUREMENT METHODOLOGY...................................... 7
2.1 Options ............................................................................................................ 7
2.2 Characteristics, Constraints and Risks............................................................ 9
2.3 Risk Management.......................................................................................... 10
3. DELIVERY, CONTRACT AND MANAGEMENT SYSTEMS .................................... 12
3.1 Features of Delivery Systems........................................................................ 12
3.1.1 Single Contract Delivery System..................................................... 12
3.1.2 Multiple Contract Delivery System................................................... 12
3.1.3 Managing Contractor Delivery System............................................ 14
3.1.4 Alliance Contract Delivery System .................................................. 17
3.1.5 Privately Financed Project............................................................... 20
3.1.6 Period Contract System .................................................................. 22
3.1.7 Direct Labour Delivery System........................................................ 23
3.2 Features of Contract Systems ....................................................................... 24
3.2.1 Coverage of Project Phases............................................................ 24
3.2.2 Construct Only ................................................................................ 24
3.2.3 Design Development and Construct................................................ 25
3.2.4 Design, Novate and Construct ........................................................ 26
3.2.5 Design and Construct...................................................................... 27
3.2.6 Design Construct and Maintain/Operate ......................................... 28
3.2.7 Guaranteed Maximum Price............................................................ 29
3.2.8 Contract System Risks .................................................................... 31
3.3 Features of Management Systems................................................................ 33
3.3.1 General ........................................................................................... 33
3.3.2 Project Management ....................................................................... 33
3.3.3 Project/Construction Management .................................................. 34
3.3.4 Project/Contract Management......................................................... 34
3.3.5 Project Director Role ....................................................................... 34
3.3.6 Project Manager Role...................................................................... 35
APPENDIX 1 - RANKING SCHEDULE .............................................................................. 37
APPENDIX 2 - FURTHER MANAGING CONTRACTOR CHARACTERISTICS ................ 40
APPENDIX 3 - FURTHER ALLIANCE CONTRACT CHARACTERISTICS........................ 42

1. INTRODUCTION
1.1 General
The ten stages in a procurement process for Government projects outlined in the NSW
Government Procurement Policy include the definition and approval of a project
procurement strategy, which provides a strategy for seeking tenders from the market and
managing the project. The strategy follows the earlier service demand identification, service
delivery option analysis, preferred delivery option identification and justification, and project
definition and approval (with a business case) stages. Producing tender documents and
inviting/evaluating tenders, selecting/engaging a service provider(s)/supplier(s) (or
contractors/consultants), delivering the procured asset, operating (and where applicable,
disposing of) the procured asset and evaluating the success of the procurement follow the
procurement strategy stage. The ten stages are summarised below.
Identify and quantify a service demand for a
genuine delivery need in an outcomes strategy
Identify service delivery options for meeting the need

with stakeholder and preliminary risk analysis
Justify proposed option with option evaluation, some

financial/economic appraisal and strategy report
Define preferred project with brief, risks/benefits

analysis, business case and authority to proceed
Define project procurement strategy with brief, risks/benefits analysis and

risk management plan, initial methodology report and later strategy report
Define project specification with tender documents,

estimate and tender evaluation plan for each contract
Call/close/evaluate tenders for each contract, and

recommend/approve/engage best project supplier(s)
Project implementation with supplier(s) carrying

out contract work and delivering asset
Asset operation/maintenance and then disposal

after supplier(s) completes asset delivery
Project evaluation during/after delivery comparing

outcomes sought and achieved, and using learnings
PROCUREMENT PROCESS
For projects valued at over $10M and high risk projects, the methodology for seeking
tenders from the market and managing the project is subject to Treasury NSW approval.
Under the Procurement Policy, agencies not accredited under the Agency Accreditation
Scheme are required to obtain expert procurement support in project planning and delivery
with the procurement of built assets valued at over $1M. Details of the Policy and additional
guidance on procurement generally are available at
http://www.treasury.nsw.gov.au/procurement/procure-intro.htm.
These Guidelines are designed to assist NSW Government agencies seeking to procure
construction works (including ancillary maintenance and operation) to select a suitable
procurement methodology for management and tenders/contracting, as part of the
procurement strategy, in accordance with the Procurement Policy. This methodology is
required for particular projects but should be identified for all projects.
A procurement methodology outlines the key means by which the objectives of a project are
to be achieved. The Guidelines describe the systems that constitute such a methodology
that are commonly available and in use in project procurement, with their risks, benefits,
advantages and disadvantages, and suggestions as to the systems that suit particular types
of projects and project risks.

No fail-safe selection process automatically deals with all projects, given the variations in
project characteristics, circumstances and risks. The selection requires judgment,
experience and expertise. Expert advisors may be required to assist with the selection.
An agency’s structure and in-house resource levels/mix will influence and may constrain the
procurement options selected as the best for the agency and the project.
A methodology description of the delivery/contract/management systems selected, with the
project brief and a risk management plan, would document this part of the procurement
strategy for approval in an initial methodology report. The remainder of the strategy would
be progressively documented in a strategy report with a project procurement plan or project
plan dealing with the strategy implementation processes, more detailed programs and
budgets, any development and other approvals required, the management team authorities
proposed, project governance and proposed tender processes.
1.2 Definitions
The following definitions apply in the Guidelines:
Agency or Government agency: NSW Government department, authority, corporation or
other entity established by an Act of the NSW Parliament. The terms “Government
agencies”, “agency” or “agencies” may be used interchangeably. An agency may act for a
client or be the client for a project.
Brief: A statement of the end user, functional and operational requirements for the
proposed project, and project quality, performance, function and scope objectives, known
also as the project or functional brief. A design brief covers this and design requirements.
Client: The owner of the asset to be procured or project works, and representative of the
end users of the asset.
Concept design: A representation of (and process of developing) the adopted design
solution responding to the requirements of the brief in a form understood by the
stakeholders, where the functional relationships are resolved and the asset form, envelope
and fabric are described in line drawings.
Construction: Includes all organised activities concerned with demolition, building,
landscaping, maintenance, civil engineering, process engineering, heavy engineering and
mining.
Construction Agency Coordination Committee or CACC: Consists of representatives of
key agencies involved in construction procurement.
Consultant: Profession person or organisation that contracts to provide design,
management or other services.
Contractor: The organisation that contracts with the Principal and is responsible for the
performance of the work under the contract.
Design: The process (and product) of converting a functional and design brief into design
details ready for documentation. Design involves concept design and design development.
Design development being the part of the process after concept design. The term design
may also be used to mean design and documentation.
Design and documentation: Design and the process (and product) of detailing the
technical and other requirements for the project in a written form that details the project
works sufficiently for them to be constructed.
Management: The planning and interactive controlling of human and material resources to
achieve time, cost, quality, performance, functional and scope requirements. It involves the

anticipation of changes due to changing circumstances and the making of other changes to
minimise adverse effects.
Principal: The Minister for a departmental agency, or the agency where it is a state owned
corporation or authority, that awards and enters a contract, and for whom the contract work
is done under the terms of a contract (and who’s agent invites, receives and processes
tenders and otherwise acts for them).
Principal’s representative or authorised person: A person appointed by the Principal to
exercise some or all of the functions of the Principal under a contract.
Procurement: The collection of activities performed by and for an agency to acquire
services, products and other assets, beginning with the identification/detailing of
requirements and concluding with the acceptance (and where applicable, disposal) of the
products and other assets.
Project: An undertaking with a defined beginning and objective by which completion is
identified. Project delivery may be completed using one contract or a number of contracts.
Service providers: Includes contractors, subcontractors, consultants (including agencies)
and sub-consultants, and their service providers, that contract to provide products, other
assets and/or services.

2. COMPONENTS OF A PROCUREMENT METHODOLOGY
2.1 Options
The selection of a procurement methodology involves establishing:
a. the most appropriate overall arrangements (or delivery system) for the procurement;
b. a contract system for each of the contract or work packages involved as the
components of the chosen delivery system; and
c. how the procurement will be managed by the agency (or management system), to suit
the delivery system and contract system(s) selected.
The following delivery systems are addressed in these Guidelines:
• Single contract - where the agency awards one contract with one contractor to
undertake all or the majority of the project works, usually also involving consultant
engagements to provide management and design services;
• Multiple contract - where the agency divides the project into and awards a number of
contract packages, possibly for trades (such as the provision of all the steelwork or
concrete) or discrete parts of a project (such as the construction of a single building or
section of a building or supply of major equipment), usually also involving consultant
engagements;
• Managing contractor - where one contractor is engaged very early in the life of the
project by the agency, after competitive tendering for management fees and other
payment arrangements, to manage and undertake the scope definition, design,
documentation and construction of the project works using consultants and
subcontractors, under a contract involving incentives for achieving agreeing target price
limits and other performance when the scope is defined;
• Alliance contract - involving an agreement between an agency and other entities to
undertake work cooperatively, reaching decisions jointly by consensus, using an
integrated management team and intensive relationship facilitation, where the entities
each cover some project risks and potentially gain some rewards, to achieve agreed
outcomes relying on “good faith” and trust, and using an open-book approach in
determining costs and payments;
• Privately financed project - where the agency arranges asset procurement under an
agreement with a private sector entity, involving entity financing, development,
ownership/control (possibly operation) and provision of the asset for a concession
period;
• Direct labour - where the agency directly hires and supervises trades-persons,
labourers and/or plant, and directly purchases materials or equipment to carry out the
project works, and possibly also uses some trade or small work packages, usually also
involving consultant engagements; and
• Period contract - where an existing standing offer contract for a particular type of work,
such as goods, services or product supply, is used to deliver the project works or part
thereof.
The following contract systems are addressed in these Guidelines:
• Construct only (CO - contract for construction and a minimum of design);

• Design development and construct (DD&C - contract for construction and design based
on at least a concept design by the Principal)
• Design and construct (D&C - contract for construction and design based on at least a
project/functional brief);
• Design, novate and construct (DN&C - contract for construction and design where the
previously engaged designer is novated to the contractor);
• Design development construct and maintain (DDC&M - contract for construction,
design based on at least a concept design by the Principal, and then maintenance of
the constructed asset);
• Design construct and maintain (DC&M - contract for construction, design based on at
least a project/functional brief, and then maintenance of the constructed asset);
• Design development construct and operate (DDCO - contract for construction, design
based on at least a concept design by the Principal, and then maintenance and
operation of the constructed asset);
• Design construct and operate (DCO - contract for construction, design based on at least
a project/functional brief, and then maintenance and operation of the constructed
asset); and
• Guaranteed maximum price (GMP - design (or design development) and construct
contract with conditions restricting the price/time for the work).
The following management systems are addressed in these Guidelines. Each system also
involves a project director and support personnel to act for the agency:
• Project management - where the overall management of the whole project is the
responsibility of consultant, in-house or another agency personnel (a person or team)
engaged as a project manager;
• Project/construction management - involving project management and a more intense
approach to managing the construction phase of the project, where direct labour or
many small work/contract packages are involved; and
• Project/contract management - involving project management, but for the management
of the agency interface with only one main contract for the remainder of the project
work, such as a D&C contract or managing contractor contract, by consultant, in-house
or another agency personnel (a person or team) engaged as a contract manager.
The selected delivery, contract and management systems and methodology would be
described in an initial methodology report also describing the project risks, constraints and
characteristics, with the characteristics, risks, advantages and disadvantages of the various
systems considered. The report would be submitted with the brief and a risk management
plan for the required approval. The management system description would cover the nature,
roles and responsibilities of the management team proposed. The methodology selection
process involved after the defining and authorising of the preferred project is outlined below.

Further identify project, project brief, risks/benefits, and
project/client constraints/characteristics
Identify stakeholders and resource constraints, and

appoint project director and expert advisers
Identify project functional and scope requirements and

constraints, and client design/management input required
Match project/client needs/characteristics to delivery

system option characteristics/risks/benefits
Match project/client needs/characteristics to management

Match project/client needs/characteristics to management

Identify preferred systems and prepare

procurement methodology report
Prepare/update risk management plan and

consolidate project brief
Identify more detailed constraints, including approvals,

time and initial program, budget and initial cost plan
Identify more detailed project processes and governance,

and prepare procurement plan and strategy report
PROCUREMENT METHODOLOGY/STRATEGY SELECTION PROCESS
If, for example, a single contract delivery system was adopted, then one of the available
contract systems would be chosen, such as DD&C. A project manager (and probably a
design consultant to help prepare the design brief/concept design with the other tender/
contract documents) would then also be involved. A PFP, alliance contract or managing
contractor system could also be the single contract. They would require a project/contract
management system, and sufficient management and agency support to prepare a brief
and award and manage a contract.
If a multiple contract system was adopted for the project, then various combinations of the
listed contract systems would be available for the procurement. A project manager and
probably a design consultant would then also be involved.
The decisions on contract packaging should consider the advantages of bundling together
the delivery of several contracts or projects into a single (larger) contract, even where they
involve separate sites. The advantages could include economies of scale and an improved
risk profile for packages with compatible timing, funding to suit, common or compatible
stakeholders, and compatible relationships with other work.
A standard form GC21 General Conditions of Contract template developed by the CACC for
the contract systems outlined above is available at
www.construction.nsw.gov.au/publications. It is also available, with additions for DN&C and
DC&M/DDC&M options, and templates for conditions of tendering and special contract
conditions, and consultant and project/contract manager form templates, through a
helpdesk, on (02) 9372 8600, which is provided to assist with procurement implementation
enquiries. Information regarding current period contracts and information communication
technology (ICT) procurement is available at www.supply.dpws.nsw.gov.au. ICT
procurement is not included in this Guideline, but ICT related guidelines are available at
www.oict.nsw.gov.au.
2.2 Characteristics, Constraints and Risks
It is essential that the management and delivery systems are selected very early in the life
of a project. The contract system selection may occur at the same time, but could occur or
be confirmed later and progressively as the project is clarified.

The risks, advantages and disadvantages with each of the delivery, contract and
management systems and their characteristics are described in the Guidelines to assist the
selection of appropriate procurement strategies. These should be considered in the
selection process with the identified project risks, constraints and characteristics. The
agency may need external expert advice to assist with the decisions involved. The
decisions may be assisted by workshops involving the relevant stakeholders and
experienced facilitators.
Project financial, physical, geographical, time, functional and design constraints and
characteristics are usually involved. Systems should be selected that will best suit the
project and maximise the benefits obtained from the expertise, initiative and innovation of
the private sector. Some risks that may be higher for a particular system may not be critical
for the project and therefore could be accepted by the agency. Some systems deal better
with some project risks and characteristics than others.
Agency related project constraints and characteristics could include the available budget,
budget flexibility and contingencies, funding source, cashflow restrictions, time available for
completion and its flexibility, staging needs, completeness and clarity of project brief,
influence required with design, design standards available, technology, project
stakeholders, availability of appropriate in-house resources (including for planning, design
and management), and agency objectives and preferences in maximising the project
benefits achieved.
Physical project constraints and characteristics usually include the type of work (new work,
refurbishment or maintenance), type of asset (building or civil engineering), site
characteristics (“green field” or in occupied premises or existing assets), work and design
complexity, location of work site and size of project.
2.3 Risk Management
The selection of the delivery and contract systems determines or affects the allocation of
risks (whether to the agency, consultants, contractors or others), types and levels of risk,
and the likelihood they will be realised. The selection should therefore include risk
management to ensure the best outcome. Each of the systems includes a particular risk
allocation regime. Some systems include incentives to encourage better performance.
For example under a single contract system, risks associated with the coordination of
component work packages are with the contractor. Some contract coordination risks are
with the Principal (for the agency) under a multiple contract system. Managing contractor,
alliance contract and PFP systems cover all the project design and construction in a single
contract that also covers work package coordination, and allow for performance incentives.
Where late brief or design changes are required by the agency this generally increases the
risk for the agency. A well-defined brief/design reduces the likelihood of late changes being
required. Both the single and multiple contract delivery systems could involve similar risk
with design changes, depending on the extent of the design involved under a contract. A
multiple contract delivery system allows more flexibility with change, with parts of the project
generally being contracted as they are sufficiently well defined. If however the brief/design
is ill defined for a contract with any delivery system, particularly with a D&C contract, there
is a greater risk to the Principal of design/construction not meeting expectations or more
costly post contract design changes being needed to address shortcomings. Construct only
contracts allow the agency to fully develop the scope/design and reduce these contract
risks. Managing contractor and alliance contract systems can also reduce such risks, with
projects where the scope needs to be resolved and developed as part of the contract work.
Questions that should be considered in the allocation of risk include:

• Who has the greater degree of control over the risk eventuality?
• Who is best placed to identify, assess, evaluate and manage the risk?
• What allocation of risks to each party is best for the project?
• Who can best allocate the risk to another party (such as an insurer) that can cover,
control or manage the risk?
A risk to a contractor that cannot be realistically priced in a competitive tendering
environment may force the contractor to under allow for the risk, and then seek
compensation through the contract or at law if the risk event occurs, or alternatively the
contractor may allow a premium in the tender price that may not be required. This risk
allocation would not generally give the best outcome for the project. The agency taking the
risk and providing for it to be addressed if it eventuated could avoid unnecessary agency
cost.
Where project scope is unclear and requires development with a contractor, delivery and
contract systems that allow the development risk to be allocated progressively should be
considered.
Further guidance on risk management and preparing risk management plans is in the Total
Asset Management Risk Management Guideline (TAM 04-12) available at
http://www.treasury.nsw.gov.au/tam/tam-assess.htm. Guidance on risk management and
determining risk levels is also included in AS 4360, Risk Management.
A Ranking Schedule is included an Appendix 1 to assist as a guide, with Section 3, in the
identification of the relative qualitative merits of, and possible risks with, delivery and
contract systems as part of a project risk management and procurement methodology
selection process. The Schedule lists typical and other risk issues that may be involved,
and rates the ability of various delivery and contract systems to deal with these issues in
typical circumstances. Other ratings may apply, and these and the applicable higher risk or
more significant issues with their relative weightings would need to be determined, for the
particular project, agency and circumstances involved.
For more complex projects a quantitative evaluation of the relative costs with possible
systems may be used. With this approach, each system could be modelled using risk-based
cost estimating, possibly with the assistance of an expert advisor such as a quantity
surveyor.

3. DELIVERY, CONTRACT AND MANAGEMENT SYSTEMS
3.1 Features of Delivery Systems
3.1.1 Single Contract Delivery System

Characteristics
With a single contract delivery system, one major contract is used to carry out the majority
of the project works and usually determines most of the cost of the project. Some pre-
contract management/coordination and brief/design preparation are required, usually
involving consultant engagements, the amount of which will depend upon the contract
system adopted. A project or contract manager and agency project director would normally
provide the pre and post contract management required for the agency.
Any contract system may be used with this delivery system. A managing contractor,
alliance contract and a PFP scheme may also be used, to allow for more scope
development and other special project needs under the contract. They are considered
separately as delivery systems below.
When Used
A single contract delivery system is the most appropriate choice where:
• there is no advantage to be gained in using several contract packages;
• enough time is available, and there is no need for fast tracking using more packages;
• one contractor can most efficiently manage the mix and scale of work, particularly
where a more conventional contract form is appropriate;
• the project budget needs to be evaluated/validated prior to construction starting;
• the whole scope of work can be agreed, readily defined and documented early in the
life of the project; and
• the agency is seeking, and the project suits, the simplest system to coordinate.
As a general rule the single contract is the most common system adopted. Being the
simplest form to coordinate, it should always be considered. It is particularly suitable for
smaller projects.
Advantages Disadvantages
The Principal is only required to award one Not as suitable for fast tracking by overlapping
main contract at an appropriate time to design and construction as a multiple contract
achieve the desired completion date. delivery system.
Most of the project coordination risk is with The brief and/or design and specification must be
the contractor, and the management for the clear for the full project to avoid changes that are
agency is minimised. usually more costly after a contract award.
A better overall market-based contract/project Not as flexible as other delivery systems for
cost estimate can be obtained early in the life special projects, if the scope needs development
of the project. or changes are likely after the contract award.
3.1.2 Multiple Contract Delivery System

Characteristics
With a multiple contract delivery system, the project is delivered through several work
packages that are initiated progressively, each involving a contract system. The work
packages selection must be well planned and structured to suit the project implementation

required. The system involves agency risks with the coordination of the contract packages,
but offers more timing and work flexibility.
The system allows some contract work to begin before all contract documentation is
complete for the project. It allows contracts to be let as documents for each package are
prepared to suit a staged program for the project. Risks can then be addressed, as they are
understood, in the various contract packages as they are awarded progressively
The system allows project/program time compression with the staging, and can provide
more time for the agency to control or influence the design process. Any later changes to
design requirements in later packages can then be more economically and readily
accommodated. It allows for design, construction, commissioning and occupation of some
project works components to progress ahead of others (possibly at some cost risk). There
is then a greater ability to react progressively to technological changes and new
opportunities as the project proceeds. Cash flow can be more readily managed with the
staging allowed. Separate supply contracts for major items of specialised equipment that
have a long lead-time may be used.
A multiple contract delivery system requires decisions to be made on the contract system
for each of the contract packages involved, and whether they will be independent or related
work packages or interdependent trade packages, or a combination of these.
Trade packages are usually highly interrelated to each other with each being highly
dependent on performance under the others. Such packaging requires a highly developed
and detailed trade based construction program, a tight schedule for the design and
documentation to support the construction timing, and more detailed expert management.
Generally using trade packages is not the best option, and they are only used where
absolutely necessary because of the detailed agency control needed of the parts of the
project involved.
More management for the agency, sometimes including more intense construction
management with many small or trade packages, is generally needed for the multiple
contract system, with the extent depending on the number and type of contracts and
consultant engagements involved. A project manager and agency project director would
normally provide the management required.
For suitable projects where the early involvement of a key contractor(s) and other special
features are required, the flexibility and other advantages (with less management and
coordination for the agency) of this delivery system may also be obtained with managing
contractor delivery system. The alliance contract delivery system may also offer flexibility in
early participant involvement advantages for extraordinary projects and circumstances.
When Used
The multiple contract delivery system is suitable for projects where:
• separate components of the construction are spatially independent and should be
completed separately for this and other reasons, where the extra flexibility, staging and
separate packaging are necessary or advantageous;
• risk management requires some components to be completed earlier to identify or
resolve issues, such as where there are potential foundation problems and an initial
contract is awarded for foundation preparation to address the risks ahead of, and to
help define, the subsequent work; and
• separate work package contracts are required to deal separately with particular
complexities or specialist work associated with parts of the project.

Allows time compression with the early Later identification of overall market based
commencement of some construction ahead of project cost estimate, more uncertainty with the
complete design/contract documentation for all end cost, and more cost risks than with a single
project components, when preparation and contract, particularly with trade packages.
tendering for only one contract would not be
possible in time.
Enables the direct early engagement of some More uncertainty with the overall project
specialist contractors (product or trade or with completion time and more time risks than with a
design input) and direct early purchases of single contract.
major plant items and materials from suppliers.
Allows staging with the opportunity to bring More discipline is needed to minimise avoidable
forward or postpone packages or accelerate or changes, made possible with the extra flexibility
decelerate some work more economically, with the system, and to expedite design and
including to meet cash flow requirements. thereby decrease avoidable project costs.
Allows more control with the direct selection of Increased disruption, delay and cost potential
particular work or trade contractors and hence with discrepancies and interfaces between
the quality of the finished product. contract packages.
Allows more flexibility in controlling costs within More agency management resources and costs
budget with less certain initial briefs and are required in the preparation of tender and
conditions, as standards may be reduced or contract documents, tender process
work omitted where a cost or time overrun with management, and in contract administration and
early work is expected, or alternatively, work coordination.
and standards may be increased where funds
and time permit.
Allows more flexibility in dealing with the A commitment to all contracts and some
potential impacts of brief, design or work construction is needed prior to knowing contract
changes, including in the construction phase. prices for the whole project.
Allows more choice with the quality and size of The agency carries greater contract
particular construction/contract teams. coordination and interface risks generally.
3.1.3 Managing Contractor Delivery System

Characteristics
The managing contractor system is for projects where the scope of work requires
substantial development to suit a basic project brief, and there are advantages in involving a
contractor early to manage and help with this development and then design and construct
the project works. The managing contractor is engaged early to commission, manage and
accept responsibility for a team of consultants that develops the brief and designs the
project works, and a team of subcontractors that constructs the project works.
Only projects with special needs suit or require this approach, and for these the managing
contractor system provides unique advantages.
A number of managing contractor system approaches are available. The contract initially
involves a design and project management agreement, and then usually provides
guaranteed lump sum ceiling priced DD&C/D&C agreements, negotiated after the scope is
sufficiently developed under the contract. Some provisions for price changes and the
sharing of savings with incentive fees are included. Mechanisms are usually included to
assist relationship management and the removal of barriers. Further characteristics are
described in Appendix 2.
A managing contractor contract is not a lump sum contract. It involves the payment of actual
reasonable costs (up to the ceiling priced or guaranteed construction sum(s) for

construction work, or up to a guaranteed total price for all the work to suit a target set by the
agency) plus fees, plus the incentive fees where targets are bettered.
The managing contractor confirms the project brief, and develops the design brief, concept
design and design. During this, the agency has the opportunity to influence or change
design with a minimum of risk of unreasonable additional design and construction costs.
Reasonable actual costs are identified or agreed and paid with the fee percentage.
This agency input into design, and greater potential to influence both the design and
construction processes allowed, involves less agency cost/time risks with changes than
would be involved with D&C and DD&C contracts, with their greater potential for related
disruption and higher contractor claims. The potential for late changes is less, because the
managing contractor is not asked to offer lump sum ceiling prices until the design is
sufficiently advanced and resolved with the agency.
The system allows flexibility with subcontract times for completion and staging with the
subcontract work packages identified and developed with the managing contractor, before
subcontracts are awarded, reducing the scope for disruption or delay costs with changes
that are passed on to the agency.
The managing contractor is selected as an expert in the management of large design and
construction projects. At the same time, the agency/Principal can have a say in the
managing contractor’s early selection of the best design consultants and the most efficient
construction subcontractors. Both design and construction are competitively tendered with
the engagement of consultants and subcontractors, giving assurances about the value for
money achieved.
More agency influence and involvement in selecting and monitoring consultants and
subcontractors is usually involved to verify value for money. Open-book approaches may
also be used to verify costs. This extra involvement entails more administration, but the
system requires less overall management for the agency than would be required with full
design and construction management with a project manager, as more is contracted to the
managing contractor.
The additional administration includes monitoring the tender process for the selection of
design consultants and subcontractors, obtaining and negotiating the guaranteed
construction sum(s), verifying consultant and subcontractor costs, and a more complicated
process of verifying the progress and final payments. Approaches can be used that allow for
less involvement in these processes, with some increased risks with demonstrating value
for money.
A contract manager would normally also be engaged and/or an agency project director
appointed to manage the managing contractor contract and support the agency. Less
management is required of them relative to other systems with difficult projects (e.g. a single
D&C/DD&C contract may involve less generally, but would not suit such projects).
When Used
The special types of projects that need the managing contractor approach, would have
many or all of the following characteristics that mean they would not be delivered as well by
other means:
• project threats and opportunities that are best managed collectively by the key
participants, including more involvement by the agency in delivery;
• significant/many unknown factors that are complex to resolve in the time available,
including unclear or uncertain scope, uncertain and unpredictable risks, changeable
project criteria and/or changeable scope throughout the initial delivery;

• delivery times that are early/tight and fixed;
• funding that is fixed;
• early key participant input and industry innovation are required, such as special
technology input and/or progressive technical updates;
• project risks and their management are more complex generally;
• more conventional risk allocation, to suit the participant that would normally best
manage the risk, would be unrealistic at the time the participants need to be engaged;
• the various diverse interests of the key participants need to be brought together
early/expeditiously to allow the project to proceed;
• stakeholder interfaces and relationships are substantial, complex and/or difficult to
manage, particularly in the time available; and
• the agency accepts that risk management requires a special delivery approach.
For difficult projects with special needs the advantages of the system include the following.
There are then potential disadvantages because of the inherent uncertainties with such
difficult projects and the methodologies needed to deal with them such as the system.
These system disadvantages are generally only involved, relative to other more
conventional delivery/contract systems, until a guaranteed construction sum(s) or
guaranteed total price, with agreed contractual dates for completion, are in place.
Allows collective stakeholder resolution of early Early “cost plus” arrangement (within tendered
scope issues, with fuller agency and expert fee and subcontract package limits) with more
initial input into design with less cost risk and early risks to the agency of exceeding cost
more control of scope/value. targets.
Allows earlier completions with the overlap of Early target rather than fixed time periods
design and construction, and staging, and (within tendered subcontract package limits)
allows the early start to construction without with more early risks to agency of exceeding
waiting for full design completion. time targets/limits.
Provides more flexibility and is better able to Greater early dependence on good
deal with complexity in developing the scope relationships and contractor efficiency, with
and design, giving better outcomes, for suitable managing project risks, and achieving targets
projects. and outcomes.
Gives greater flexibility to accommodate design Early risks to the agency of not achieving best
influences/changes during early design with value for money outcomes, with inappropriate
less cost risk. contractor management.
Allows the early involvement of all key project More contract administration, but less overall
participants in developing responses to the management for the agency than with other
project objectives. options for special projects.
Encourages the early involvement of hard dollar Less early incentive to expedite design, and
contractor management in project management greater early risk with having late design
with incentives, for special projects, and decisions and design changes, requiring
reduces the need for separate overall project greater discipline and prudent management by
management support for the agency. the agency and contractor.
Gives management advantages, for special Difficulty with setting appropriate target prices
projects, relative to other delivery systems early to suit the expected work scope based
because of the type of managers/management only on a project brief and possibly some
more likely to be provided. concept design details.

Provides greater potential for more Potential for the agency to have expectations
efficiencies/optimum design and savings that exceeding the brief and targets set, reducing
are shared with the agency with incentive the incentive for the contractor to agree
payments. guaranteed construction sums and/or work
within the targets.
Provides many of the other advantages of Number of competent and willing potential
“relationship contracting” with its mechanisms tenderers is more limited, and higher margins
for resolving issues and sharing benefits for for the management provided and different
special projects. profit potential involved may be expected.
3.1.4 Alliance Contract Delivery System

Characteristics
An alliance contract (or project alliance or alliance) is an agreement between two or more
entities that undertake to work cooperatively, reaching decisions jointly by consensus, using
an integrated management team and intensive relationship facilitation. These entities each
cover some project risks and potentially gain some rewards in achieving the agreed
outcomes, relying on good faith and trust, and using an open-book approach to identifying
costs and payments. Further characteristics are described in Appendix 3.
Alliance contracts are part of a range of delivery and contract systems that involve
“relationship contracting” that include processes to manage relationships, remove barriers,
and maximise the contributions made and successes achieved by all the participants. Other
relationship contracting models include the managing contractor system and GC21 General
Conditions of Contract based contracts (in part).
Alliance participants are selected early in the project on the basis of factors other than price,
including the alignment expected with, and the relationships expected between, the
participants. The agency chooses the entities it regards as most able to deliver the required
project outcomes, including value for money. Time is spent in the selection of participants,
involving discussion, alignment, senior executive meetings and workshops, to establish
trust, explore relationships and identify the right personnel and participants.
The participants in alliances vary to suit the project. All the key participants in a project
could be parties to the alliance contract. As a minimum the agency (and client if another
entity), the designer and key construction contractor(s) would normally be involved.
Typically, the project participants could also include, consultants, expert advisors (could
also be engaged separately, particularly relationship/alliance facilitation, time, cost and KPI
experts), key management providers and specialist contractors/suppliers. Participants may
be identified as consortium teams, individual organisation or persons. Some organisations,
including contractors and subcontractors, could be involved in a project through more
conventional contracts.
The participants are represented equally (say up to 2 people each) on a management
“board” with an equal say in decisions that are made by consensus (except with changed
project scope and funding, that are determined by the agency or client).
The people provided by the participants form an integrated management team (headed by
one person as project manager) in a single office with positions filled on a “best for project”
basis (not necessarily to suit their employer’s role). The people are given clearly defined
roles and responsibilities and are required to make decisions on a “best for project” basis. A
project director and agency/client personnel would normally represent the agency/client on
the “board” and management team.

The agency would normally agree to pay participants for their base costs, as confirmed by
open-book audit and/or negotiation, plus pre-determined corporate overhead and profit
margins, so long as the target costs for the project are not exceeded and target
performance is achieved. These margins would be reduced or not paid if the target costs
were exceeded or target performance was not achieved. The proportion at risk would be
determined by agreed risk/reward curves or formulae. Other incentives may also be
involved, linked to performance targets, such as the payment of agreed shares of cost
savings or the deduction from payments of agreed shares of cost overruns, adjusted to suit
other performance (using KPI) and shared in proportion to each non-client/agency
participant’s pre-agreed involvement.
The liability and pain of the non-client/agency participants is capped (and the agency/client
has the remaining liability), with the participants agreeing they have no recourse to litigation
except for wilful default, failure to maintain insurance, non-payment, failure to honour an
indemnity or failure to give audit access. PI insurance does not cover areas where the
insured’s liability is waved, so special agency liability provisions and insurance cover are
required where professional risks are high and the consequences are substantial.
When Used
Alliance contracts may be more effective and beneficial than other alternatives, and be the
best approach, when most of the following project constraints and characteristics exist for
large and complex (probably high profile) projects:
• improved and extraordinary outcomes are sought under extraordinary circumstances,
through the extra relationship facilitation and motivation possible through an alliance,
including with project location and/or complexities that are exceptionally challenging;
• threats and opportunities are involved that are best managed collectively by the key
participants, including more involvement by the agency/client in delivery;
• budget is fixed and limited and requires a special or extraordinary effort to achieve the
outcomes expected;
• time and the other challenges with the project do not allow other alternatives, and
require a special or extraordinary effort, including where more conventional contracts
would not be possible when the participants need to be engaged;
• project scope is unclear or uncertain, and is very difficult to properly define in the time
available with significant/many unknown factors involved;
• project risks are uncertain or unpredictable, and project criteria may be changeable;
• considerable complexity is involved, with little time to resolve the issues, such as
environmental issues, and those that require special and complex key stakeholder
involvement;
• there is a need for early advice from a range of key stakeholder experts to help together
to define the scope and resolve the issues involved;
• there are various diverse key stakeholder interests to be brought together early and
expeditiously;
• key stakeholder interfaces and relationships are complex and/or particularly difficult and
require a special approach, such as complex agency/client, consultant and contractor
interaction and management with large design and construct projects; and
• community interests are complex and require a special approach.

With other delivery and contract systems, for applicable projects the constraints would lead
to greater risks to outcomes and more potential for problems. Under an alliance contract
extraordinary issues and problems are able to be dealt with on the best for the project basis,
facilitated by the non-adversarial alliance approach and mechanisms, including the
cooperative and collaborative behaviour encouraged, the collective decision-making and
integrated management involved.
An alliance contract will not be suitable, where:
• the agency/client, consultant, contractor other participant personnel to be involved are
not experienced at (to some degree), or suited to, successfully working, or not able to
work, as a team with the attitudes and approaches needed for an alliance;
• the agency/client is not convinced the risk management needed requires this special
delivery approach;
• the non-client/agency participants required do not have the attitude, capacity, expertise,
or corporate cultures needed for an alliance;
• the project is relatively small, and the additional tender process and alliance
implementation costs are not consistent with the project value and the benefits to be
gained; or
• more conventional delivery and contract systems will achieve the outcomes required,
such as where the project is not as complex, there is little room for improving outcomes
with such an effort, the outcomes can be achieved more readily by other means with
less intensive relationship facilitation, and time is available to resolve complexity/issues
and complete design without alliances.
There is usually an inherent early uncertainty about project outcomes because of the
special nature of applicable projects, and not just the system, that would be the same or
worse with other systems. The system also involves inherent risks and benefits as follows.
Lower industry tendering costs and reduced, Less tender price competition and related
but more intense, tender evaluation period(s). certainty with value for money.
More reasonable risk allocation for non- Higher costs and more effort involved
agency/client participants (but greater potential facilitating relationships and determining
risk to agency/client). costs.
Better potential for maximising innovation and Responsibility with risks may not be as clear,
product efficiencies with special projects. and more is with the agency/client outside that
allocated and where liability is not specifically
allocated.
Better incentives for safer working conditions More risks with controlling the direct costs to
with special projects. participants paid by the agency/client,
mitigated by cost targets and more client
involvement.
No dispute culture and better potential for More potential for quality to be compromised
win/win outcomes with special projects. to meet cost targets, mitigated by quality
targets and more client involvement.
Potential for reduced project costs, earlier High level of dependence on relationships,
completion and better outcomes generally with teamwork and the adaptability and
special projects under extraordinary performance of individuals, more demanding
circumstances, and with the incentives for cost on all the personnel involved, and difficult
savings and cost transparency available. culture and attitude shifts/changes required of
many.

More project management efficiencies with Extra direct agency/client involvement, cost
integrated management for special projects. and input required, though probably less than
other systems for special projects.
Allows early key participant input and The non-client/agency participants could
involvement, allowing better development of the expect and receive a higher margin (including
responses to the project objectives with special profit) than with other systems for the
projects. additional resource intensive and demanding
input and commitment required.
Improved design and quality outcomes with Higher consultant costs are more likely (but
special projects. lower construction costs potential greater).
Better potential for job satisfaction and skill Much lower liability cap for non-client/agency
enhancement for the people involved. participants and loss of agency/client
litigation/legal rights, and reduced PI cover to
suit lower limits to the liability of professionals.
Advantages for the non-client/agency Disadvantages for the non-client/agency
participants with more certainty with cost participants with the extra effort required to
recovery and better potential for returns; provide a return (possibly due to the project
capped liability and risk; better potential for demands as much as the system), particularly
win/win outcomes; and better potential for with stretch goals, extra people management,
enhanced corporate reputation, satisfaction and and culture and attitude shift/change required;
skill development, particularly with achieving opening of “books” to public scrutiny and
enhanced goals, and making culture and having accounts to suit; more demands on
attitude changes. people; and requirement to provide the best
people, expertise, resources and skills
available to the one project.
3.1.5 Privately Financed Project

Characteristics
The procurement of capital works may involve the use of private sector funding with
“privately financed project” (PFP) delivery, such as “build own operate transfer" (BOOT) and
"build own transfer" (BOT) schemes.
Privately financed projects involve the private sector financing and developing an asset,
with developer ownership/control (possibly operation) and provision of the asset for a
concession period. The Government may contribute through land, capital works, risk
acceptance, revenue diversion or the purchase of agreed services related to the asset, such
as their operation and maintenance. The approach is generally used to cover economic
and social infrastructure, and typically includes both a capital works component and an
ongoing service delivery component.
The complexity of these schemes means some specific tailoring and suitability analysis for
individual projects would be considered initially before the project procurement strategy was
fully explored, and this is not covered in detail in this Guideline.
The November 2001 Working with Government - Guidelines for Privately Financed Projects
document (available at http://www.treasury.nsw.gov.au/wwg/pdf/wwgguidelines.pdf with
other documents) addresses the involvement of the private sector in the procurement of the
State's infrastructure using PFP options such as BOT and BOOT schemes, and provides
further information on such schemes.
Suitable projects are usually initiated by seeking expressions of interest, and then a request
for detailed proposals from a short listed panel of respondents, and the selection of a
developer from the proponents. The invitation for expressions of interest and request for

detailed proposals would define the scope of work/options being sought from the private
sector and the basis/criteria for the evaluation of responses and proposals.
The specific criteria used and their weightings will vary on a case-by-case basis, however
the generic criteria that would generally to be included are outlined in the Working with
Government - Guidelines for Privately Financed Projects document.
Arranging a PFP agreement requires more effort, expert advice, management and support
for the agency than other systems. A contract manager would normally be engaged and/or
agency project director appointed to manage the agreement and support the agency. Less
management may be required than for other systems after the agreement is in place, as
more is contracted to the developer.
The following are some general PFP agreement characteristics:
• risk management processes would be used to ensure that all project risks are properly
assessed, valued (where appropriate) and allocated to the party best able to manage
them in any agreement;
• the Government would not guarantee private sector borrowing’s or take an equity share
holding;
• the return to a developer and, where applicable, to the Government, would only reflect
the risk(s) borne;
• local council guideline compliance would be required;
• adverse affects on consumer rights would be prohibited;
• assets would be developed (and operated) in accordance with appropriate Australian
and international standards, and the developer would be required to obtain and conform
with appropriate Development Approval conditions and regulations, including those
covering the protection of the environment; and
• core services related to the asset would be delivered by the public sector, and non-core
services would be delivered by the private sector where this provides better value for
money.
When Used
Projects requiring private sector financing that are able to provide a return to a private
sector developer, with long concession/service delivery periods, possibly up to 25 years or
more for some assets, and with a total contract value of $20 million or more may suit this
delivery system.
Such projects must meet the same standards of economic, social and environmental
evaluation set for publicly funded projects, and a PFP option must be shown to give a better
overall outcome for the Government in these areas relative to other delivery systems (using
comparator model assessments).
Enables much of the impact of obtaining Possible public misconceptions about the
capital funding to be either totally or partially benefits and nature of the project as a private
absorbed by the private sector or spread over sector initiative rather than, and in comparison
a much longer period than for other systems. with, a Government initiative.
For applicable projects, the asset The need for officers and advisors/consultants
management risk rests with the private sector with the right level of less common contract
developer, not only during construction but experience necessary to thoroughly assess
also during part or all of the life of the asset. financial/technical proposals, to manage the

tender process and negotiations with potential
developers, and to document and manage the
PFP agreement.
Provides more economic asset development More agency cost/time with the efforts of the
and, where applicable, associated service above advisors/consultant and other
provision for special projects. resources, and developing the comparator
model/assessments required, and much
higher industry tendering cost.
Where the responsibility for the day-to-day Potential for asset/service quality to be
operation of the asset rests with the developer compromised, and the real relative
after the asset is provided, less is required of cost/benefits to be unclear, unless there is
the agency, maybe only management of the complete and appropriate documentation of
asset lease, monitoring of asset maintenance asset and service quality requirements, proper
and probably some operation/use of the asset. comparator model and allowance for the
proper confirmation of outcomes.
Lower overall agency asset delivery and Less Government/agency control over the
management cost, offset to some extent by asset/service quality and operation of the
higher agency tender process costs. asset upon its creation.
3.1.6 Period Contract System

Characteristics
A period contract system or a standing offer contract (with a price list/schedule of rates)
allows for specific types of work, possibly trade based, that may be required over a given
time period. A contract is entered, based on the period contract, when applicable work
arises for a particular project, at the tendered (for the period contract) or better prices/rates
and conditions negotiated to suit the work.
There are usually several contractors identified under each period contract. One can be
selected from the pool for particular project work to suit the prices/rates and conditions
offered and negotiated, the work type, locations and times involved, and contractor
availability and approach.
When Used
The period contract system is particularly used for ongoing programs of work, including
product supply, and is not initiated for particular projects. The Government particularly uses
such contracts for goods and services (and information communication technology)
procurement with State Contracts Control Board contracts.
Period contracts may be used for the supply of construction work elements, and the supply
or hire of plant, equipment, and other goods and services.
Pre-arranged contracts, with competitive Agency supply risks are involved with any other
conditions, are available for use with a project contracts depending on the work
minimum of effort where needed for the provided under the period contract.
project.
Additional and better conditions to suit the The existing contract conditions may not cover
project may be negotiated with the all that is required.
contractors.
Tender process time/cost savings for the Offers for additional conditions may need to be
work involved, offset by any cost/time with sought from, and negotiated with, several
negotiations required with the contractors. contractors.

3.1.7 Direct Labour Delivery System
Characteristics
With direct labour delivery, the project works (or a part thereof) such as a building may be
divided into trade packages, and trades-persons and labourers employed and/or plant hired
and supervised, and materials or equipment directly purchased to carry out the project
works. Trade and small work package contracts may also be used. The system may also
be used in conjunction with other delivery systems.
All direct labour work is usually interrelated with each part being highly dependent on
performance with the other parts. The system relies on a highly developed and detailed
work program for construction, requires a tight schedule for the design and documentation
to support the construction timing, and needs more detailed expert construction
management.
With the system, the agency is directly responsible for carrying out the work involved using
its own or hired resources. Much more management, particularly intensive construction
management, is needed with the system. A project/construction manager would normally
be engaged and an agency project director appointed to manage the work.
When Used
The direct labour delivery system is particularly used where:
• smaller projects are involved and 'in-house' resources have the required capacity;
• direct control with extra flexibility is required where the work cannot be accurately
defined for a contract;
• uncertain and complex interface works between contracts are involved, where it is
inappropriate to use another contract;
• the required speed of implementation and coordination with other dependent activities
prohibits using a single contract or other work packages;
• there is a potential for the rapid development of technology or other change in a work/
trade/special equipment area, that must be addressed independently of other
concurrent work;
• more time is required for design and to confirmed details, requiring some work areas to
be addressed earlier and separately; and
• the work in a trade/equipment/other area is an experiment or a trial for new processes
or technologies.
Where absolutely essential for compelling The agency carries all the work coordination
reasons, helps to resolve special coordination, and interface risks, and risks with possible
scope uncertainty, interface or other problems, work gang, hired plant or trade/small
and address special procurement needs, not contractor inefficiencies.
able to be met otherwise.
More certain quality outcomes where direct No tender price competition, and less certainty
agency control is needed. with cost/time outcomes and value for money.
More agency control of design and construction More agency design and management risks,
outcomes. and greater extra related cost risk.

3.2 Features of Contract Systems
3.2.1 Coverage of Project Phases

The project delivery (with timing not to scale) phases and where they are covered by the
various contract systems are shown below. Less design by the contractor than indicated
below may also be allowed with the DD&C and D&C based contracts.
Brief Concept Design Documentation Construction Maintenance and Operation

Evaluation Design Development
CO
DN&C
DD&C
DDC&M/DDCO
D&C
DC&M/DCO
3.2.2 Construct Only

Characteristics
With a construct only contract, the agency prepares the detailed design for the whole of the
works (except for some detailing such as workshop drawings). This preparation can either
be done in-house or by using another agency or consultants. It is essential then, because
of the later involvement of the contractor, that the design team has or uses people with
sufficient knowledge and experience of buildability issues, material and resource availability,
relevant industrial relations issues, and construction health and safety hazards/risks.
A contract, based on a lump sum price or a schedule of rates (where the quantities are
uncertain), is awarded for the completion of the remaining design/documentation and
construction of the works.
When Used
A construct only contract may be appropriate for projects where the following requirements
are substantially satisfied:
• the optimum design can be developed without involving the prospective contractor or
specialist subcontractors;
• the agency prefers and is able to manage the interface between the detailed design
and construction, and select and engage, and be directly responsible for, the design
consultants;
• there is enough time available for the detailed design to be completed before
construction must commence to complete the project on or within time; and
• the agency prefers to have the design fixed prior to construction contract award.

A detailed design is available before Increased project duration with the longer
construction contract award, potentially allowing lead-time to prepare the design and tender
the highest level of agency control and documents.
satisfaction with product detail and quality. Little cash flow control after letting contract.
Risks to the agency are reduced with the design The greater document complexity and volume
essentially completed to suit agency with the agency design may lead to more
requirements prior to construction, and with the errors and omissions, and increase the
resulting simpler contract management. potential for contract claims and extra costs.
More likely to obtain appropriate and better Less opportunity for contractor innovation.
tenders/prices for fully defined contract works
where they are well defined. Not necessarily least end cost.
There are lower tenderer tendering costs, and Greater potential for design and construction
agency tender process costs. coordination and buildability problems.
There is a larger pool of suitable tenderers, The agency’s directly arranged design and
which increases the scope for competitive project management resources, effort and
prices/tenders for some contracts. costs are greater.
3.2.3 Design Development and Construct

Characteristics
With a design development & construct contract, the agency prepares a concept design
(and possibly does some design development) and performance specifications, using in-
house or external consultant resources.
A contract is awarded for the design development/documentation and construction of the
works. The contract often involves a lump sum price, but may be based on a schedule of
rates where some quantities are uncertain.
When Used
Projects suited to the DD&C system will be those where:
• the concept design and design brief can be clearly and well defined;
• there are well established standards for design development, such as standards for
details and finishes;
• there would be some design and construction coordination and buildability risks with the
construct only system that are to be avoided;
• the agency seeks to retain more control over concept design and/or does not have the
resources or time available, or need, to complete the design;
• the requisite specifications for the developed design, including the product and material
standards/performance to be used, can be clearly described, or some proprietary
designs and/or construction processes are available in the marketplace and may be
more economical than using special designs; and
• the contractor is not required to perform extensive investigation work and interact
extensively with outside authorities in completing design.
The agency can substantially determine the The cost to tenderers of preparing tenders is
concept design and need only nominate the higher, potentially reducing tenderer interest
performance criteria required to regulate design and competition.
development.

The agency’s risk is reduced with the contractor With less agency design there is risk to that
being responsible for, and best able to manage, contract design documents may not be
detailed design and its coordination with specific enough or may be ambiguous,
construction. increasing quality, outcome and cost risks.
Reduced agency risk of design related changes The tender prices may carry a higher risk
being needed, and resulting contractor cost/time premium, as the contractor bears more design
claims, because the concept design is set. risk than with the construct only system.
Fewer agency arranged resources are required Agency initiated variations are more costly if
for design than with construct only, and with the contractor’s design/construction is
contract management than with D&C. disrupted.
Greater potential for cost and time savings with The numbers of competent potential tenderers
faster and more efficient construction, with the is less than for some construct only contracts,
contractor better able to tailor design detail to especially for smaller projects.
preferred construction methods, and the More contract management for the agency
overlapping of design and construction. than for construct only contracts
3.2.4 Design, Novate and Construct

Characteristics
The design novate & construct contract system is similar to the DD&C system, though
usually requiring less design development by the contractor. It has the distinguishing
feature of allowing the use of the same designer/design team from design conception to
completion.
When the DN&C contract is let there is also a novation of the Principal’s design agreement
with the designer to the contractor. Novation involves signing over the contractual
relationship between the designer and the Principal to create a contractual relationship on
exactly the same terms between the designer and the contractor. The contractor then
assumes full and unambiguous responsibility for the whole design as well as for the
construction. The contractor takes over responsibility for paying the designer's fees for
work done to complete the design from the time of novation. The contract usually involves
a lump sum price, but may be based on a schedule of rates where some quantities are
uncertain.
When Used
This system is best selected where:
• the agency needs full control in producing the concept design and the design continuity
achievable with the same designer completing design development;
• the project involves large, one-off unusual works with special design needs;
• the design brief/concept design and Principal’s design agreement with the designer are
clear and well defined;
• details of the required design development, including the product and material
standards required, to satisfy the design brief, can be clearly described;
• appropriate alternative design resources may not be available to the contractor; and
• there is a significant extra benefit to the agency with having the contractor responsible
for all design and documentation, and the contractor having full access to the original
designer and its knowledge of the design issues.

The continuity with the designer’s involvement in The contractor and designer may be
all design and documentation reduces some of disadvantaged by having to enter an
the risk with special designs of the intent not engagement on terms predetermined by
being understood and quality not meeting the others, thus increasing costs. It is possible
agency’s needs and expectations. the designer/contractor may not ratify the
novation.
The contractor is able to improve design There is potential for complex litigious
buildability in developing the concept design, problems if the relationship between designer
which should lead to more efficient and effective and contractor deteriorates. If parties have
construction. not worked together well before, and are not
matched carefully there is a “forced marriage”
risk.
Functional/concept design planning and some There may be a premium in the tender prices
design details are developed to fully meet the for uncertainties and additional risks such as
agency’s requirements before contract award, latent conditions, designer relationships and
as for DD&C, giving an advantage over the D&C design errors, which may or may not
system. eventuate.
The other advantages of the DD&C system. The other disadvantages of DD&C, with some
possible reduction in the Principal’s design
document risks.
3.2.5 Design and Construct

Characteristics
Under a design & construct contract, the agency prepares a project brief, and performance
and quality requirement specifications (and possibly does part of a concept design). A
contract is awarded to prepare or complete the concept design, and for design
development/documentation and construction of the works. The contract usually involves a
lump sum price or is based on a schedule of rates. A “supply and install” contract can be a
form of D&C contract.
When Used
D&C contracts are suitable for projects where:
• there are well established standards for works component details, finishes and other
design, and the agency wishes to avoid many of the risks with design born with some
other contract systems;
• a straightforward, more precise, properly defined and concise brief can be prepared,
and there are few complex issues to resolve, and little likelihood of changes after the
contract award;
• the agency has insufficient time or resources, or no need, to use the construct only or
DD&C contract systems;
• encouraging tenderers to offer alternative design concepts and/or details may result in
cost savings and other benefits for the agency;
• the agency’s requirements and required outcomes can be identified clearly at the time
of entering into a contract; and
• using specialist firms, proprietary designs and construction processes available in the
marketplace may be more economical than using special project specific designs.
With the system, post contract design changes are likely to be more costly as there is
greater potential to disrupt the contractor's design dependent work program. Uncertainty in

the project brief could result in a need for contract variations and/or in disputes over
interpretations.
The system would not be the most suitable where the requirements and required outcomes
cannot be properly identified at the time of entering into a contract, and there are possible
latent conditions and uncertainties involved. Then the tenders may be qualified or include
contingency sums, removing time and cost advantages with the system.
Project time can be reduced by starting Agency initiated design changes or other
construction prior to the finalisation of all variations may be more costly where
detailed design, at the contractor's risk. design/construction is disrupted.
For suitable contracts, the full benefit may be If the project brief is uncertain, there is more
obtained of applicable proprietary designs and risk the contractor will justify claims for the
products, and related construction processes, rectification of work, or produce work below
available in the marketplace. the anticipated quality/standard, where the
requirements are unclear. This and the greater
design quality risk generally means ensuring
design quality may be more difficult, and
contract management more complicated.
The contractor assumes total responsibility for Tender prices may be higher to compensate
the project works. for the additional contractor risks involved.
Fewer directly arranged agency resources are More costly for tenderers to prepare tenders.
required for design, offset to some extent by If fewer tenderers are invited to reduce
more complicated contract management. tendering costs this may reduce competition.
There is wider scope for innovation by the Number of competent potential tenderers is
contractor. more limited, especially for smaller projects.
3.2.6 Design Construct and Maintain/Operate

Characteristics
Under a design construct & maintain/operate contract, the agency prepares a project brief,
performance and quality requirement specifications, and possibly part of the concept design
(a concept design and possibly more design is completed for DDC&M and DDCO). The
specifications include asset condition monitoring indicators and maintenance conditions to
ensure the finished works/assets continue to perform during the maintenance phase.
Operating conditions are also included for DCO/DDCO contracts. Typically, a contract is
awarded for the concept design (for DC&M/DCO), design development/documentation,
construction of the works involving a lump sum price, with maintenance/operation (for say
up to 10 or 12 years) of the works based on a schedule of rates.
When Used
DC&M and DDC&M contracts are suitable for projects where maintenance of the
constructed asset is required, with the advantages this provides with contractor
responsibility/incentives for designing and constructing to optimise asset quality and
maintenance needs, and where D&C and DD&C contract systems, respectively, would also
be preferred. Where also required, including operation further enhances the incentives for
optimising asset quality.
The issues with design changes with DC&M/DCO and DDC&M/DDCO contracts are the
same as for D&C and DD&C contracts respectively. Uncertainty in the maintenance
specification would produce contract variation risks and/or disputes over interpretations.
Changes to the design or construction that change the asset, impact on
maintenance/operation as well, and also involve related variation risks.

The systems are inappropriate if the requirements and required outcomes cannot be
properly identified at the time of entering into a contract. As for D&C/DD&C contracts,
without sufficient certainty, the tenders may be qualified or include contingency sums that
would negate time and cost advantages with the systems. Certainty with maintenance and
operating conditions is also required to avoid the risks involved.
The contractor is more likely to deliver a better The agency must be able to define what it
product at the end of the construction phase to wants during the maintenance/operating
optimise asset quality, and better address period.
maintenance and operating needs.
The contractor’s liability for defective works is More costly to tenderers to prepare tenders,
extended beyond what is normally the limit by and to agency/client for the tender process,
law (6 years in NSW without a Deed). with the design and maintenance/operation
involved.
Project time can be reduced by starting The other disadvantages of D&C/DD&C, as
construction prior to the finalisation of all applicable, with some reduction possible in
detailed design, at the contractor's risk. design quality risks, but increases in contract
management costs with maintenance and
operation.
There is wider scope for innovation in design, Tender prices may be higher for design and
construction and maintenance/operation by the construction to compensate for the additional
contractor. risks involved.
The contractor assumes total responsibility for Higher tendering costs involved, potentially
the works and their maintenance/operation. reduce competition.
Fewer directly arranged agency resources are Agency initiated design and other variations
required for design than with construct only, may be more costly where design/
offset to some extent by more complicated construction is disrupted and/or maintenance/
contract management. operation is affected.
The other advantages of the D&C and DD&C The number of competent potential tenderers
systems, as applicable. is more limited with design and
maintenance/operation being involved,
potentially reducing competition.
System is not suitable for smaller projects.
Fewer directly arranged agency resources and Most likely building contractors do not have a
less effort are required for maintenance/ maintenance/operating arm and could
operation, offset by the extra contract subcontract the maintenance/operating
administration required over the maintenance/ activities, which may involve more risks with
operating period. ensuring the constructor and maintainer/
operator synergies and asset/maintenance/
operating optimisation sought with the system.
More potential for better and more coordinated More risks with contractor maintenance
maintenance than if it was done by other activities because end users occupy the site,
means. requiring better coordination and cooperation
between the various parties involved.
3.2.7 Guaranteed Maximum Price

Characteristics

The guaranteed maximum price contract system is designed to provide greater certainty
with the contract end cost and completion date. The GMP system can be applied with the
DD&C and D&C systems, to include the key additional features they provide.
The system is designed to reduce the scope for changes to the contract price and
completion date, and to reduce the agency’s direct management effort, by:
• having the contractor take the risks associated with ambiguities or discrepancies in the
tender/contract documents, with no claims being allowed for variations or otherwise with
such ambiguities or discrepancies;
• allowing no subcontractors to be nominated or selected by the agency;
• having the contractor take the risks associated with, and allowing no claims for, latent
conditions;
• having no cost adjustment for inflation;
• reducing the grounds for extensions of time, such as limiting those due for delays with
inclement weather and industrial disputes; and
• allowing a bonus for early completion (as a possible option).
With the system, where the agency/Principal directs a variation increasing the work, the
contractor is required to propose offsets with reduced quality, less design and/or a reduction
in scope, where this it is needed to maintain the original contract price. There is also
provision for the quick resolution of disputes over the value of such offsets/variations using
an independent expert for a prompt, binding decision.
When Used
The system is suitable when quality and scope reductions can be accepted to achieve
greater certainty with the cost/time outcomes required. It is suitable for contracts where
DD&C or D&C systems are preferred, and the additional certainty potentially available with
the system is also required.
Greater potential for the end cost to Potential for higher tender prices and higher
approximate the original contract price, if tender end cost, as tenderers need to price additional
price competition does not result in an cost/time risks that may not eventuate, or take
unrealistically low contract price and related risks and possibly make claims and raise
disputes. disputes to cover costs.
Greater potential for on time completion Further restriction to the field of capable and
(possibly with extra cost) through reduced willing tenderers.
opportunity to claim extensions of time and More prone to Principal/contractor disputes.
optional bonus provisions.
Lower level of contract management required by Agency expectations may not be met where
the agency with reduced potential for claims the scope/quality is reduced to meet cost/time
where other issues and disputes are minimised. targets.
Restricted right of contractor to claim with less Some industry resistance to contracts
complicated contract provisions, provided the involving such risks to contractors, and issues
contractor is not inclined to raise issues to cover with the inequity and problems with the system
costs and disputes are minimised. that mean it is not used often.
Discouragement of agency variations that Risks with disputed claims with particular
increase the scope. events being successful where they are
supposed to be barred with the system.
The other advantages of the D&C and DD&C The other disadvantages of D&C/DD&C, as
systems, as applicable. applicable.

3.2.8 Contract System Risks
As outlined above there are advantages and disadvantages with each contract system.
The most significant differences are the amounts and types of risks to the contractor and
agency with the various systems. There is less risk to the contractor involved with CO and
more with D&C contracts. However, the risk to the agency of design quality not meeting
expectations increases with more design being done by the contractor. This risk is less
where the design expected is well understood, such as for a proprietary product or when
reproducing a well defined asset. Also, with managing contractor and alliance contract
systems this risk can be reduced for special projects.
Including maintenance in a contract can reduce the design and quality risks to the agency,
as there is more incentive for the contractor to optimise asset quality and maintenance
needs, which may mean improved design and construction quality to optimise construction
and maintenance costs.
Other risks to the agency increase with D&C/DC&M and DD&C/DDC&M (though less so)
relative to CO contracts with:
• longer tender and evaluation periods being needed and greater related costs being
involved, where more design and other services are required of the contractor;
• cost and time impacts of agency generated design changes being greater where the
contractor does more design; and
• larger contingencies in tender prices being likely to allow for risks to the contractor
where the design is less developed at the tender stage.
Conversely, where the contractor does more design, risk to the agency diminishes with less
potential for costs due to the agency’s design documentation errors and consequent
contractor claims. Some of the risk relativities with the various contract systems are
illustrated below.
The D&C system gives a greater ability to fast track a contract by allowing the greatest
potential to overlap design and construction. Construct only does not allow this overlap.
D&C also involves a greater cost to tenderers with tender preparation. Construct only
involves the least cost to tenderers. Managing contractor and alliance contracts allow
overlapping and fast tracking with less cost to tenderers.
RISK ALLOCATION
m ax C ontractor's D esign R isk m in
m ax m in
D& C
M anaging C lient's
C ontractor's DD &C
Contractor D esign
Incentive for
Input
Innovation
DN & C
C onstruct
O nly
m in m ax
m in M eeting C lient's expectation m ax
of finished product

D&C contracts may reduce the overall project costs and/or time for some but not all
projects. Generally it is likely that the overall project time will be reduced with this system
because of the greater potential to overlap design and construction. There is also generally
some potential with D&C/DD&C based contracts for cost savings due to the contractor's
ability to better match design to existing design/products and preferred/efficient construction
methods, though in some cases the allowances made for design risks may offset some or
all of these savings.
Because less design information is included in a D&C contract and the contractor’s planning
and work depends more on how this is interpreted, the potential is greater for costs and
time to increase with any changes needed to clarify or alter requirements. Also, there is
more risk with a D&C contract, where requirements and expectations are not made clear, of
the quality of the final product not achieving the level of agency satisfaction likely with a CO
contract that specifies the design. Where there are difficulties with covering all the
functional/performance requirements and product purposes in preparing the specifications
for a D&C contract, the risks are greater with achieving the design and construction
outcomes sought.
It is extremely important that the relative design and other project/contract risks of the
project and system(s) are taken into account when considering the best contract system(s)
for the project.

3.3 Features of Management Systems
3.3.1 General
An agency would normally engage/appoint a project/contract manager (a person or team)
and/or a project director (with expert advisor support) for the overall management of a
project. The project/contract manager (other agency or private sector) and the project
director would then be responsible for the overall management of the project, including
anything from several (project manager) to only a few contracts (project/contract manager).
The project/contract manager would normally be engaged early in the life of the project
subsequent to the project director’s (and advisors’) assessment and confirmation of agency
needs and their early identification of project scope. The management approach proposed
with the procurement methodology would be determined and any related engagement
arranged prior to the finalisation of the procurement strategy, to allow the project/contract
manager to assist with its finalisation and project initiation.
An in-house project director would normally be appointed supported by in-house/other
agency personnel and possibly other advisors. An expert advisor may also be used as a
project director. If insufficient agency personnel are available to undertake, or they are not
accustomed to undertaking, the required project/contract management responsibilities, the
agency would normally engage an external project/contract manager (as a person or team).
This would require a management agreement between the Principal and the external
project/contract manager. The personnel of another agency may be engaged as the
project/contract manager resource and/or expert advisors.
In general, the role of a project/contract manager and/or project director (with expert advisor
support) is to assist the agency to ensure the successful completion of the project, through
planning, programming, organisation, coordination, monitoring, management and
surveillance of the work required, including through the agency’s other consultants and
contractor(s) involved.
The management engagement would be based on a project brief and standard commercial
conditions; and follow agency/Government approval of the project and at least the
management system principles in the procurement methodology, as determined by the
agency. The project director, with some expert support, administers the project/contract
manager agreement.
The project/contract manager assists the agency to manage its risks and achieve project
objectives by the management of the activities and contract package(s) identified in the
procurement methodology.
3.3.2 Project Management

The project manager manages the engagement of appropriate consultants to carry out any
design/documentation involved and other activities for the project. The consultants may be
engaged either:
• under a contract/agreement with the Principal, with a project manager providing the
Principal's representative or acting as an agent of the Principal; or
• with the agency's approval, as sub-consultants to the project manager.
With the separate contract with the Principal, the contractual relationship is between the
consultant and the Principal. The project manager is responsible for the coordination and
management of each contract with a consultant, and for ensuring that contract work
complies with the contract. The project manager is not directly responsible for the
adequacy of the consultants’ work.

With a sub-consultant there is no contractual relationship between the sub-consultant and
the Principal. The project manager is responsible for the adequacy of all sub-consultants’
work.
Following sufficient documentation of the project design, the project manager manages the
engagement of building/construction contractors for the agency. The project manager
manages the contracts between the Principal and building/construction contractors, and
provides a person to act as the Principal’s authorised person (or representative) under the
contracts.
A multiple contract delivery system requires additional management by the project manager,
outside the building/construction contracts, of the interface between contracts, and the time
and other performance of all contractors. CO/DD&C contracts require some pre-contract
design management by the project manager.
3.3.3 Project/Construction Management

If the construction component of the project includes multiple contract delivery and multiple
trade or many small contracts, the project manager may be required to use more of its
personnel for the more intense construction management involved, or the agency may
engage a construction manager (as a person or team) with a project and/or design manager
(person or team) (agency or private sector). A construction manager could manage the
trade or many small contracts as a “head contractor” responsible for project construction,
and direct the day-to-day activities of the trades/small contractors. The intense
construction management may only be involved with some parts of project construction.
Any such construction manager would not normally undertake construction work, but may
arrange preliminaries and common services under separate small contracts. A construction
manager would help to identify the specific contract packages, document tender
requirements, manage contract awards and manage the contracts. A construction manager
would work closely with the design management before and during construction to help
address programming, coordination and any buildability issues before contractors are
engaged.
3.3.4 Project/Contract Management

With a single contract delivery system, a project may not require as much management or
ongoing coordination for or on behalf of the agency. The one contract will then determine
the project completion date. The level of pre and post contract management/coordination
required for the agency will vary and depend upon the contract system adopted. Construct
only contracts require more pre-contract management and coordination, in completing pre-
contract design, than D&C contracts, which require more post-contract management for the
agency to achieve the design outcomes required through the contract.
Managing contractor and PFP delivery, and possibly a single D&C (and DD&C in some
cases) contract, require less management for the agency. Where less is required, only the
smaller contract manager (person or team) and/or the project director (and advisors) may
be needed to manage the agency’s interests before and under the contract. With an
alliance contract, a separate project or contract manager would not be needed and the
project director (and probably expert advisors) would be included and work in the alliance
management team for the agency/client.
3.3.5 Project Director Role

The project director, in-house support personnel and and/or other advisors:

• ensure that a satisfactory project scope description in a brief and tender documents are
prepared to call tenders for a project/contract manager, or to negotiate an agreement
with another agency and/or to brief/identify other in-house personnel for the role;
• call tenders for a private sector project/contract manager, or negotiate an agreement
with another agency and/or identify other in-house personnel for the role ;
• ensure the people involved with handling tenders have no actual or perceived conflicts
of interest;
• ensure the tender evaluation, selection and review of recommendations are completed
following the receipt of tenders, make a submissions to any expert reviewers involved,
and obtain approval to award a contract and issue a letter of award to engage a
project/contract manager;
• appoint/engage a project/contract manager (other agency or private sector or some/all
in-house personnel, including interim personnel where needed early);
• brief the appointed/engaged project/contract manager (and interim personnel on early
processes) on the required practice and procedures, tender/contract documentation,
and operation and administration of contracts and use of commercial conditions;
• provide the project/contract manager with guidance on the required tender process
practice and procedures;
• review the project/contract manager’s tender documents before calling tenders, and
recommendations following the receipt of tenders, for contracts/consultancies;
• ensure the main contractor on the work site is appointed as the principal contractor and
controller of the work site under the OHS Regulation 2001;
• administer the project/contract management agreement and monitor the activities of the
project/contract manager and its ability to satisfactorily complete the project, report on a
regular basis on the project/contract manger’s performance and take any necessary
corrective action;
• maintain effective separation of any other conflicting agency activities (such as when
both a tenderer and assessor with a project tender process where the agency is
tendering against others); and
• plan and document all tender evaluation and probity assurance processes prior to their
implementation.
3.3.6 Project Manager Role

The project manager is responsible for organising appropriate resources and ensuring the
completion of some or all of the following activities, depending on the procurement strategy
adopted and the role required. A contract manager would only be responsible for those
activities related to setting up the contract (and any consultancies needed), contract
management/administration and coordinating agency input to design and other contract
activities.
• Documenting, arranging and administering consultancy agreements with design
consultants and other specialist consultants on behalf of the agency.
• Developing a project brief (where not completed by project director), concept
designs/design briefs, design and specifications (as applicable) for the project and
contract packages using the consultants.

• Preparing, monitoring and controlling an overall program for the project, setting out the
times within which the main parts of the project are to be executed, including all relevant
on site and off site activities. The program would include the dates by which actions,
information and decisions are required from the agency, design consultants, specialist
consultants, authorities and others involved in the project.
• Examining options for resolving problems, delays and bottlenecks, and taking
appropriate action to mitigate delays and resolve problems.
• Ensuring all the necessary skilled personnel/contractors/consultants, materials and
equipment are available when required.
• Preparing, updating and reporting on overall cost plan/statements setting out all
relevant elemental cost estimates and budgets, and providing all necessary project cost
control systems.
• Developing and implementing, usually through the main construction contractor(s),
industrial relations and health and safety management for the project dealing with such
matters as:
• the location and type of amenities for the project workforce;
• the communication framework with contractor, union, and health and safety
representatives; and
• dispute resolution and other project wide procedures and the like.
• Developing and implementing a quality and other management plans for the project
manager’s involvement in both design and construction for the project.
• Preparing documentation for tender processes and contracts, incorporating the designs
and technical specifications prepared by the design consultants, and required
commercial conditions.
• Organising the awarding of contracts between the agency/Principal and contractors,
allowing for the pre-qualification of appropriate potential contractors.
• Administering contracts with contractors on behalf of the agency.
• Undertaking the necessary liaison with, and managing the involvement of, external
persons, organisations and other project stakeholders, as required.
• Arranging some common site user facilities where appropriate, such as ablutions,
craneage, scaffolding and the like, through contractors.
• Reporting regularly to the agency on all aspects of the project relevant to the project
management agreement.

APPENDIX 1 - RANKING SCHEDULE
Using this Schedule may assist the selection of the best delivery and contract systems for a project.
The comparison and qualitative analysis of options and selection may not need such a scoring
process.
The ratings used below are as follows: 1 – High, 2 – Above average, 3 – Medium, 4 – Low. Other
rating numbering may be used.
R = Rating of system, WR = Weighted rating of system
The lowest rating number (R) in this case indicates the preferred system. The rating numbers given
are indicative only, and may vary for different projects and agency circumstances. Select the issues
listed and add others, and identify their ratings, to suit the project, agency and circumstances involved.
Identify weightings for the issues involved to suit the project and their importance to the agency (say
for example 1 to 5 with the lowest having the highest weight). For each issue, multiply the weightings
by the identified relative rating of the system, and add the products to give the Total Weighted Ratings
for each system to identify the system ranking. With the ratings/weighting numbering used, the lowest
Total will indicate the highest ranking. Using the Schedule will only be a guide to the best options.
With a multiple contract system, various contract system configurations would usually be considered
to identify the system rating numbers for comparisons with single contract systems.
Issue Identified Multi Managing Alliance Single Single Single Single Single
Weighting Contract Contract. Contract DC&M/O DN&C D&C CO DD&C
R WR R WR R WR R WR R WR R WR R WR R WR
Design development flexibility 1 1 1 4 3 4 1 3
Extent of design input by agency 1/2 1 1 4 2 4 1 2
allowed
Agency/user design input 2 1 1 4 3 4 2 3
efficiency/ flexibility
Flexibility for scope resolution 2 1 1 4 4 4 2 4
Ability to address complexity 2 1 1 4 4 4 2 4
Ability to address uncertainty 3 1 1 4 4 4 4 4
Ability to address the extraordinary 3 2 1 4 4 4 4 4
Cost/time risk with brief quality 1/2 1 1 4 2 4 1 2
Impact of agency design errors 2 2 1 1 2 1 4 2
Flexibility with brief change 2 1 1 4 4 4 1 4
Flexibility with scope, agency 1 1 1 4 3 4 3 3
design and technology change
Impact of design change 2 2 2 4 2 4 2 2
Brief/design realisation risk/cost 2 2 2 3 2 4 1 2
Package coord./interface risks 4 3 2 1 1 1 1 1
Buildability and/or design and 2 1 1 1 2 1 4 2
construction coordination risks
Risk with design extras costs 2 2 2 4 3 4 2 3
Designer continuity 1/2 1 1 1 1 1 1 2/3
Contractor design responsibility 2/3 1 1 1 1 1 4 2
Optimising life cycle cost 1/2 1 1 1 1 3 1 2
Optimising maintenance and 1 1 1
design and defects minimisation
Contr. maintenance responsibility 1 1 1
Completion timing certainty 3 2 2 1 1 1 1 1

Completion timing minimised 1/2 1 2 2 2 2 4 2
Min. time pre- contract 1 1 2 2 3 1 4 2
Flexibility with timing changes 1 1 2 4 4 4 4 4
Flexibility with cashflow control 1 1 1 4 4 4 4 4
Early start to design 1 1/2 2 2 1 2 1 1

Staged design allowed 1 1 1 3 3 3 4 3
Early start to construction 1 1 1 2 2 2 3 2
Early engagement of key 2 1 1 2 3 2 4 3
contractors
Staging flexibility 1 1 1 3 3 3 3 3
Delay effect of one contract on 3 2 2 1 1 1 1 1
others
Capital cost minimised 4 2 3 3 2 3 2 2

End cost versus budget certainty 4 1 1 3 2 3 2 2
Flexibility to adjust scope to suit 1 1 1 1 1 1 1 1
budget
Value for money certainty for 1 2 4 2 2 2 1 2
general projects
Value for money certainty for 2 2 2 3 3 3 3 3
special projects
Risk of contract claims 2 2 2 3 3 3 1 2
Extent of management cost/effort 3 1 4 3 3 3 3 2
for agency for general projects
Extent of management cost/effort 3 1 2 3 3 3 3 3
for agency for special projects
Risk contingency in tender prices 1 2 3 4 4 4 1 2
Minimising tendering costs 2 2 2 4 2 4 1 2
Minimising tender process costs 3 2 4 2 2 1 1 1
Quality certainty/outcomes/risks 2 2 2 3 3 4 2 2
Quality of management 2 1 2 2 2 2 1 1
Choice of contractors 1 1 1 4 3 3 1 2
Availability of contractors 1 3 4 4 3 3 1 2
Innovation possible 2 1 1 3 2 3 3 2
Simplicity of contract conditions 3 3 3 4 4 3 1 2
(even simpler with GMP option)
Industry acceptance of approach 1 2 3 3 4 3 1 2
Reliance on relationships 2 3 4 3 3 2 1 1
Novation/relationship complexity 2 2 4 2 3 1 1 1
Total Weighted Rating

Ranking
The following is an example for a particular project where the selected issues shown have been
determined as the most important with the weightings indicated.
Extent of design input by agency 1 1/2 1.5 1 1 1 1 4 4 2 2 4 4 1 1 2 2
allowed
Brief/design realisation risk/cost 1 2 2 2 2 2 2 3 3 2 2 4 4 1 1 2 2
Package coord./interface risks 5 4 20 3 15 2 10 1 5 1 5 1 5 1 5 1 5
Contractor design responsibility 3 2/3 7.5 1 3 1 3 1 3 1 3 1 3 4 12 2 6
Completion timing certainty 1 3 3 2 2 2 2 1 1 1 1 1 1 1 1 1 1
Completion timing minimised 2 1 3 1 2 2 4 2 4 2 4 2 4 4 8 2 8
Capital cost minimised 1 4 4 2 2 3 3 3 3 2 2 3 3 2 2 2 2
End cost versus budget certainty 2 4 8 1 2 1 2 3 6 2 4 3 6 2 4 2 4
Value for money certainty 1 1 1 2 2 4 4 2 2 2 2 2 2 1 1 2 2

Risk of claims 2 2 4 2 4 2 4 3 6 3 6 3 6 1 2 2 2
Extent of management cost/effort 3 3 9 1 3 4 12 3 9 3 9 3 9 3 9 2 6
for agency
Quality certainty/outcomes/risks 1 2 2 2 2 2 2 3 3 3 3 4 4 2 2 2 2
Reliance on relationships 2 2 4 3 6 4 8 3 6 3 6 2 4 1 2 1 2
Total Weighted Rating 69 46 57 55 49 55 49 44
Ranking for single contract 2 5 4 3 4 3 1
The total weighted ratings indicate a single DD&C contract is preferred. Ratings for other issues and
weightings would be checked for the project to confirm all were covered. The next ranked managing
contractor option would only be attractive if special conditions applied. Novation and
maintenance/operation options would only be considered if they were particularly needed for the
project. Other multiple contract system ratings may apply for other contract system configurations and
may need to be considered.

APPENDIX 2 - FURTHER MANAGING CONTRACTOR CHARACTERISTICS
The managing contractor is selected using non-price criteria, and possibly tendered
management fee (a lump sum price or based on a schedule of rates, for “preliminaries” such
as site security and induction management, and possibly common site services and some
defined design and construction) and management fee percentage(s) (for design and
construction management). These fees may also be addressed by paying pre-agreed
margins for profit and overheads on the reasonable direct costs incurred. Some incentive
fee arrangements, (with the proportions of savings to be shared normally set by the agency)
may also be tendered and included in the selection criteria. The work done for the
management fee and percentages fee(s) (or margins and costs) must be specified in the
tender/contract documents.
Reimbursable sub-consultant or subcontract costs are paid for other work. Percentage fees
are then paid as the tendered percentage(s) of the actual reasonable consultant costs and
subcontractor costs incurred. Where the reasonable costs incurred with margins for profit
and overheads are paid as the management fees and reimbursables, the costs and
payments due may be determined using an open-book approach.
Before the request for tenders, the agency establishes a budget and specifies a target
price, a target construction sum(s) and target date(s). More than one target price may be
used and just a target price(s) could be used instead of target construction sums.
The target price is the maximum amount that the agency proposes to spend on the project
for design, construction and management by the managing contractor. The target
construction sum is the maximum amount that the agency proposes to spend on
construction work alone. The targets may be subject to change under specified
circumstances.
One approach is that, when the design is sufficiently advanced, the managing contractor
offers, and the parties negotiate and agree, a guaranteed construction sum(s) to suit the
target construction sum(s). The guaranteed construction sum(s) is then the maximum price
(subject to some changes) that the Principal will pay to complete the related construction
work. The managing contractor meets any costs that exceed the target construction
sum(s), including the actual amounts payable to subcontractors. Another possible approach
is for the target price(s) set by the agency to act as a guaranteed maximum price(s) or a
ceiling on all payments by the Principal and the final actual cost. This requires more
certainty with, or flexibility to change, the scope required, but would provide a more certain
limit to agency costs within some allowance for cost contingencies.
If the guaranteed construction sum is less than the target construction sum, the managing
contractor is paid a percentage of the saving as an incentive fee. If the final actual cost of
the project is less than the target price, the managing contractor is paid a percentage of the
saving as another incentive fee. The potential for the managing contractor to earn
worthwhile incentive fees is an important aspect of the delivery system. The proportion of
savings shared must be sufficiently generous to provide a real incentive for the managing
contractor to make savings. Other incentives linking performance with other indicators (KPI)
to payments to the managing contractor, or other incentive arrangements, may also be
used.
If the guaranteed construction sum offered exceeds the target construction sum there will
be no related incentive fee paid and other sanctions may apply. If the final actual cost of the
project exceeds the target price there will be no related incentive fee paid.

If the final actual cost of the project exceeds or is under (by a defined proportion such as
+25%) of the original target price for reasons beyond the managing contractor’s control,
allowance may be made for a proportional increase or decrease in any lump sum
management fee.
The managing contractor must use acceptable tender process/documentation procedures
and forms that comply with Government policy, in engaging consultants and subcontractors.
With guaranteed construction sums, the Principal does not ask the managing contractor for
a guarantee on all costs, but only on construction costs, and will only ask for the guarantee
when the design is sufficiently advanced, thereby minimising the risk with variations. The
incentive for the managing contractor to give the best possible guaranteed price (consistent
with the scope/quality developed and identified) is the prospect of a substantial and better
incentive fee. If the target price(s) is all that is “guaranteed”, there is incentive for all costs to
be optimised to suit the scope/quality developed and identified. The price paid is essentially
“cost plus” under the contract, limited by any agreed guaranteed construction sums or a
specified guaranteed target price.
Because the managing contractor is not actually paid the guaranteed construction sum, but
is paid the actual cost of construction up to that sum, the managing contractor does not
make another profit by offering a higher guaranteed construction sum.
Initially there are target dates but not contractual times for completion. The competitive
tenders invited by the managing contractor for all construction work allow for, and the
construction subcontracts have, contractual times for completion. These give some control
over time performance.
Without the managing contractor necessarily being in breach of contract, the target price (if
not guaranteed initially) and the target dates can be exceeded, though termination of the
contract (or other sanctions) are generally allowed if a guaranteed construction sum (with
contractual times for completion) is not offered or the offer exceeds the target construction
sum. If no guaranteed construction sum(s) was required, the target price(s) (and possibly
other intermediate cost performance targets as agreed or set) would be set as a ceiling with
sanctions and/or reduced incentives for missed targets. Other means of identifying
contractual times for completion would then be needed, and progressively agreed by the
parties, with this approach.
It is possible that the agency could seek a design, or have a project brief or scope
expectations, which could not be constructed for the target construction sum or within the
target price. If the managing contractor is not prepared to guarantee to construct the works
for the target construction sum or less, the Principal may adjust the target and seeking a
new guarantee, or waive the target and simply paying “cost plus” for construction, or
terminate the contract, pay for the work done, and complete it by other means. Other
sanctions may also apply. As indicated above, if no guaranteed construction sum were
required other default approaches would also be used.
If, at the time the managing contractor obtains subcontract tenders for construction work,
the cost of construction appears to be higher than the agency is prepared to pay, it is
possible even then to change the design and not incur the liability for extra delay costs
which would be likely with changes under, say, a lump sum D&C contract. If such a change
in the design is required, the managing contractor is entitled to a variation to any
guaranteed construction sum agreed before the change, the related target construction sum
and the target price. The fees paid to design consultants may increase with changes to the
design, but the managing contractor is only paid for reasonable design consultant costs and
the related management fee percentage.

APPENDIX 3 - FURTHER ALLIANCE CONTRACT CHARACTERISTICS
An alliance agreement is developed to suit the conditions identified by the agency/client,

and others developed by the participants (generally initially under interim cost plus
consultancy agreements between the agency and each of the other participants) based on
key primary agency parameters.
The alliance agreement would usually provide for:
• early identification of target costs for the whole of the project, with actual project costs
to be within the target costs;
• a commitment to common identified objectives and outcomes, and action for the good
of the project, with collective performance obligations (with some possibly assigned to a
particular participant) and responsibilities for achieving outcomes;
• a full sharing of all participants’ information, knowledge and skills;
• a cooperative fulfilment of obligations through integrated management and collective
decision making by consensus;
• cooperation, good faith, mutual trust and respect, and mutual support in dealings (going
to extraordinary lengths and “the extra mile”) between participants and their people;
• collective ownership of most risks (subject to caps and the agency/client covering
residual risks) to suit the agreed/equitable risk and reward allocation;
• agreement and willingness to share, with an agreed/equitable allocation of, pain (risks
and losses) and gain (rewards and profits) (with all win or all lose outcomes);
• a pursuit and encouragement of innovation and innovative thinking;
• a non-adversarial attitude and processes, including intensive facilitation of relationships;
• full access to the expertise, resources and skills of all participants, with an efficient use
of expertise on a best for the project basis;
• open-book transactions, with independent open-book auditing of participants’ financial
records to help identify their base costs, overheads and margins for payment purposes;
• identification and use of indicator (KPI) targets in key result areas , to measure
performance, such as OHS management, environmental management, training/
industrial relations management, community involvement, continuous improvement,
work quality, time and stakeholder outcomes; and
• an expedited completion of work.
The agency/client has the right to change project parameters, with the participants then
being responsible for changing the alliance agreement to suit.
The agency/client has the right to terminate the alliance for convenience, and termination
could follow if no consensus is reached with a decision.
The agency/client, with the support of the other alliance participants, or the alliance
participants could arrange for any Development Approvals and other project approvals
required.
Intense people management is involved to address:
• any culture and attitude shift/change required in the participants and their people;

• the reliance on relationships and greater demand on people involved;
• the extra effort needed with the more ambitious goals involved, while maintaining a
reasonable lifestyle for the people involved; and
• the preparing and guiding of people needed.
The intense people management may involve extra time, cost and people, including
additional agency/client support/input/people, and the early/continuing involvement of
experienced expert facilitator(s). This would normally be mitigated by selecting the right
experienced managers and people for the management team, thereby reducing the need
for facilitators and an extra range of extraordinary initiatives. For special projects that suit
and require the system, less agency/client input would be required than with more
traditional contracts (that would not be able to address the special challenges normally
involved as efficiently or successfully or in the same time), especially with supervision,
auditing, and managing and resolving conflict.
As well this, under alliance agreements usually:
• the project manager and facilitator(s) drive and encourage the delivery processes, and
achievement of targets and outcomes;
• “board” members also facilitate processes and the achievement of outcomes;
• “expert” service providers are used and relied on with cost estimates for target cost
components;
• “expert” service providers are relied on for some KPI identification, target setting and
measurement;
• “expert” service providers are used and relied on for setting time targets;
• the particular probity and confidentiality issues involved are identified and managed;
• visible and unconditional participant senior management support is required;
• transmission of an alliance culture to subcontractors and workers is encouraged; and
• industrial relations management is coordination by key contractor(s) (including entering
project agreements where applicable), with alliance participant support, to suit the
contract structure involved.

Procurement Methodology Guidelines For Construction: New South Wales Government

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Procurement Methodology Guidelines For Construction: New South Wales Government

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New South Wales

Version 1 - February 2005

NSW Department Commerce

New South Wales. Dept. of Commerce

Quality management systems guidelines for construction.

Electronic version is available from http://www.commerce.nsw.gov.au

1. Construction industry –New South Wales – Quality control.

Construction Agency Coordination Committee

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

Identify service delivery options for meeting the need

Justify proposed option with option evaluation, some

Define preferred project with brief, risks/benefits

Define project procurement strategy with brief, risks/benefits analysis and

Define project specification with tender documents,

Call/close/evaluate tenders for each contract, and

Project implementation with supplier(s) carrying

Asset operation/maintenance and then disposal

Project evaluation during/after delivery comparing

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

Identify stakeholders and resource constraints, and

Identify project functional and scope requirements and

Match project/client needs/characteristics to delivery

Match project/client needs/characteristics to management

Match project/client needs/characteristics to management

Identify preferred systems and prepare

Prepare/update risk management plan and

Identify more detailed constraints, including approvals,

Identify more detailed project processes and governance,

PROCUREMENT METHODOLOGY/STRATEGY SELECTION PROCESS

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

3.1.1 Single Contract Delivery System

3.1.2 Multiple Contract Delivery System

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

3.1.3 Managing Contractor Delivery System

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

3.1.4 Alliance Contract Delivery System

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

3.1.5 Privately Financed Project

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

3.1.6 Period Contract System

Procurement Methodology Guidelines for Construction

Procurement Methodology Guidelines for Construction

3.2.1 Coverage of Project Phases

Brief Concept Design Documentation Construction Maintenance and Operation

3.2.2 Construct Only

Procurement Methodology Guidelines for Construction

3.2.3 Design Development and Construct

Procurement Methodology Guidelines for Construction

3.2.4 Design, Novate and Construct